Monetary Economists Rap Carter, Congress Plans

By James L. RoweBy James L. RoweMarch 8, 1977

A group of leading monetary economists today warned that the Carter administration and Congress appear to have adopted economic policies which will lead ultimately to higher inflation and higher unemployment.

The group was sharply critical of what is called economic "fine tuning," that is taking a large number of specific policy actions to remedy a number of particular problems such as investment, joblessness and inflation. The group prefers a less interventionist approach which tries to create a general climate conductive to increased economic growth and lower inflation.

The group, which calls itself the Shadow Open Market Committee after the Federal Reserve Board's Open Market Committee which sets monetary policy for the nation, listed among the "disquieting policy proposals and actions" out of Congress and the administration:

The congressional and administration economic stimulus package, which the group said will cause a "short-term blip in unemployment and consumption" but which will do nothing to foster capital investment which is a crucial determinant of productivity and standards of living.

Pressure on foreign government to pump up their economies "in the hope of gaining support for inflationary policies in the United States."

Higher growth rates of money, which the shadow committee would stimulate the economy now," but raise the rate of inflation in future years."

The committee is made up of 12 business and academic economists who believe that the rate of growth of the money supply - currency in circulation and checking accounts - is the most important determinant of inflation, economic growth and unemployment.

Joint chairmen of the group are Allan H. Melzer, an economics professor at Carnegie-Mellon University in Pittsburgh, and Karl Brunner, professor at the University of Rochester.

The economists said it "is doubtful that employment and output will be increased, on average, during the next three to five years, by a policy of increasing employment now and showing inflation 'later.' A lasting recovery with low inflation can be achieved if, instead of fine turning, we proceed gradually to achieve both goals: higher employment and a stable price level."

The monetarists also called on the Federal Reserve Board to hold teh rate of growth of the money supply to between 4 and 4.5 per cent over the next year. The group warned the central bank that it has allowed money growth to get a little out of hand in recent months.

Federal Reserve Board chairman Arthur F. Burns told Congress last month that the agency will try to keep money growth in the range of 4.5 per cent over the next year.